April 11, 2011

Via Electronic Mail:

The Office of Regulations and Interpretations

Employee Benefits Security Administration

Attn: Proposed Definition of Fiduciary Regulation

Room N-5655

U.S. Department of Labor

200 Constitution Avenue, N.W.

Washington, DC 20210

Re: Proposed Definition of Fiduciary Regulation

Ladies and Gentlemen:

Managed Funds Association (“MFA”)1appreciates the opportunity to have 

testified at the Department of Labor’s (the “Department”) hearing on its proposed 

regulation regarding the definition of the term “fiduciary” under section 3(21) of ERISA. 

We believe the full and open discussion of viewpoints and potential consequences is an 

important part of the public comment process and we applaud the attention that the 

Department gave the hearings, and particularly Ms. Borzi’s attendance at so much of the 

hearing.

During the hearing, Mr. Wong asked the following question regarding the 

fiduciary to a plan asset vehicle: 

Under current law would you view that fiduciary -- that valuation of the 

plan asset vehicles assets as being fiduciary in nature in and of itself just 

because it's a plan asset vehicle?

As we promised, we would like to answer this question more fully for the record. In 

responding to Mr. Wong’s question, we also would like to address why the proposed 

appraisal provisions could be worrisome to MFA members with respect to a fund that is 

deemed to hold plan assets. 

 

1 MFA is the voice of the global alternative investment industry. Its members are professionals in hedge 

funds, funds of funds and managed futures funds, as well as industry service providers. Established in 

1991, MFA is the primary source of information for policy makers and the media and the leading advocate 

for sound business practices and industry growth. MFA members include the vast majority of the largest 

hedge fund groups in the world who manage a substantial portion of the approximately $1.9 trillion 

invested in absolute return strategies. MFA is headquartered in Washington, D.C., with an office in New 

York.
April 11, 2011

Page 2 of 3

As you know, the assets of any private investment fund in which 25 percent of the 

total value of any class of equity interest in the fund is held by benefit plan investors are 

deemed to be plan assets for purposes of ERISA. As such, managers to these so-called 

“Plan Asset Funds” are fiduciaries to the Plan Asset Fund, including with respect to the 

valuation of the Plan Asset Fund’s assets. However, the service providers and

counterparties to Plan Asset Funds that provide information regarding the value of an 

asset typically are not fiduciaries under ERISA under current law. 

Values in any fund are derived from public reporting services, for those assets that 

are publicly traded, listed, or otherwise daily reported. However, many assets held by 

hedge funds, such as swaps, structured notes, private equity, nonpublicly traded debt, and 

other similar instruments are priced by reference to dealer quotes, issuer quotes, 

appraisals and other similar sources. We are concerned that the parties that provide such 

quotes could be deemed to be fiduciaries under the Department’s proposed regulation. 

MFA is concerned that imposing fiduciary status on service providers, such as 

fund administrators and custodians, that provide input on the value of illiquid securities 

held by Plan Asset Funds could impair the ability of Plan Asset Funds to find suitable 

service providers on a commercially reasonable basis. This is because imposing 

fiduciary status on service providers could affect the compensation of every prime 

broker, custodian or fund administrator, as many of the existing agreements likely would

violate the prohibited transaction provisions of ERISA, if applicable. Further, any

service provider deemed a fiduciary would need to be bonded, have fiduciary liability 

insurance, and would likely raise its fees in order to cover the cost of potential litigation 

regarding the values provided to Plan Asset Funds.

We are also concerned about the potential for counterparties that provide input as 

to the value of illiquid securities to be deemed fiduciaries under the proposed rule. 

Counterparties that are best able to provide input as to the value of illiquid assets, such as 

over-the-counter derivatives, also often are the best trading partners for Plan Asset Funds. 

Imposing fiduciary statues on these counterparties because they provide input to Plan 

Asset Fund managers could preclude those counterparties from transacting further with a 

Plan Asset Fund on a principal basis, to the detriment of the Plan Asset Fund and its 

investors.

The additional costs to and limitations on Plan Asset Funds would ultimately be 

borne by investors in the fund, thereby increasing the costs to plans that invest in Plan 

Asset Funds. Faced with potentially prohibitive costs or the inability to find suitable 

service providers in the first place, funds may be reluctant -- or even unable -- to take 

investments from plans, which would greatly limit plans’ alternative investments options. 

The cost to plans of these lost opportunities and limited choices could be significant.
April 11, 2011

Page 3 of 3

If you have any questions regarding the outline of MFA’s testimony, or if we can 

provide further information with respect to these or other regulatory issues, please do not 

hesitate to contact Benjamin Allensworth or me at (202) 730-2600.

Respectfully submitted,

/s/ Stuart J. Kaswell

Stuart J. Kaswell

Executive Vice-President & Managing Director,

General Counsel